Process for qualifying as an Emissions Intensive Trade Exposed Industry (EITE)

By Claire Smith.

Key Points:
The Government considers that there may be as many as 40 activities in the economy which may be eligible for EITE assistance.

In our Insights of 15 December 2008, we outlined the new definition of "trade exposure", the more generous eligibility thresholds and the Government's decision to allow proponents to choose between calculating emissions intensities based on emissions per million dollars of revenue or value added. The Government has now published a fact sheet summarising the changes in the EITE assistance program between its position in the Green Paper and the White Paper position.

The Government considers that there may be as many as 40 activities in the economy which may be eligible for EITE assistance. Based on the data compiled by the Government so far, subject to formal emissions intensity and trade-exposure assessments:

• the 90 percent assistance rate is likely to apply to aluminium smelting, cement clinker production, lime production, silicon production, and integrated iron and steel manufacturing;
• the 60 percent assistance rate is likely to apply to alumina refining, petroleum refining and LNG production; and
• specific activities in the pulp and paper manufacturing sector, the iron and steel sector, the plastics and chemical manufacturing sector, other non-ferrous metals sectors and the glass manufacturing sector may be eligible.

The Government has not been able to release more detailed information on the likely EITE candidates because much of the data has been provided on a commercial-in-confidence basis. Further, according to the Government, this data has not been calculated in a consistent manner, is not comprehensive in all cases, does not relate to the definitions of specific activities, and has not been consistently assured to appropriate standards. This information is necessary for the Government to assess the eligibility of activities for EITE assistance and complete the draft regulations.

We examine below the key stages that entities wishing to qualify for EITE assistance and the Government will need to complete next year in advance of CPRS commencement.

1. Provide data to Government

Entities will be requested to provide data on their emissions, production, revenue, exports and possibly costs on an activity basis. The Government will release a Guidance Paper early in 2009 explaining data collection methodologies, auditing and assurance requirements, and data and the format of data required. The Guidance Paper will also set out activities which the Government suggests might be eligible for EITE assistance and the process by which other activities may be considered.

2. Government uses data to determine eligibility of activities and allocative baselines

The Government will use the data collected from individual entities to establish (averaged across all entities conducting a particular activity): the trade exposure of the activity; the emissions intensity of the activity; and the permit allocation for the activity.

For those activities that meet the threshold for EITE assistance, the Government will determine an allocative baseline (taking into account the weighted industry average emissions intensity for the activity and international evidence of emissions intensity for that activity. The latter is important where there are only one or two entities in Australia). The allocative baselines will then be incorporated in the draft regulations to be released in the middle of 2009.

3. Allocation of permits by the regulator

The regulator (established through the legislation) will allocate permits to entities engaged in EITE activities listed in the regulations. Entities will need to apply to the regulator for their permit allocation each year in order to:

• demonstrate that it conducts the activity specified in the regulations;
• demonstrate that is the relevant eligible person for that activity; and
• provide details of the relevant level of production specified in the regulations.

The number of permits the regulator issues will be the allocative baseline for the EITE activity multiplied by the entity's production for the proceeding year.

4. Assessment of new activities

Activities may be added to the regulations where entities conducting activities that are new to Australia or have not previously been assessed for EITE assistance apply and are successfully assessed against the eligibility criteria. Activities may also be added where they were previously assessed as not meeting the eligibility criteria but are reassessed successfully at a review of the EITE assistance program, in light of commodity price changes and changes to coverage of the CPRS.

For further information, please contact Claire Smith.